QUESTION
We are a client of yours and retain you for our servicing compliance. One of the things we’ve realized over the years in working with your firm is the impact the FDCPA has on our collection activities. In particular, the non-foreclosure and time-barred collection activities.
Our foreclosure process has passed numerous regulatory reviews. But we want to ensure we handle the non-foreclosure and time-barred collection policy needs. Your team is already working on it. However, I would like you to share your insights with your readers about how the FDCPA applies to the abovementioned concerns.
As the Chief Risk Officer, I believe other servicers need to get their FDCPA policy and read it carefully to be sure that these aspects are adequately covered. A few years ago, we learned the hard way! I hope you’ll share some information about my concerns.
What is the relationship between non-foreclosure and time-barred debt collection activities?
ANSWER
Of course, I recognize you are one of our clients. I was privileged to work with you to arrange compliance support services. Thank you for the opportunity to work with your organization!
Now, to your question. I would be glad to share some information. Let me first provide a brief outline that should set the stage for further explication involving non-foreclosure and time-barred debt collection.
The Consumer Financial Protection Bureau issued an advisory opinion related to time-barred debts.[i] The advisory opinion affirms that the Fair Debt Collection Practices Act (FDCPA) and the Debt Collection Rule prohibit FDCPA-covered debt collectors from suing or threatening to sue to collect a time-barred debt. The advisory also affirms that this prohibition may apply to debt collectors who bring state-court mortgage foreclosure actions to collect on time-barred mortgage debt.
The FDCPA and its implementing Regulation F govern the conduct of debt collectors when they collect debt.[ii] The statute and regulation generally define a debt collector as
“any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”[iii]
Many individuals and entities seeking to collect defaulted mortgage loans and attorneys bringing foreclosure actions on their behalf are FDCPA debt collectors.
So, to expand this outline further, the FDCPA and Regulation F define debt as
“any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”[iv]
Thus, a consumer’s payment obligation arising from a mortgage transaction primarily for personal, family, or household purposes, such as the purchase of the consumer’s residence, falls within the plain language of this definition.[v] It follows that state court foreclosure proceedings often constitute the collection of debt under the FDCPA, and debt collectors who engage in such debt collection activity are subject to the requirements and prohibitions of the FDCPA and Regulation F, whether or not that debt is time-barred.[vi]
Regulation F prohibits a debt collector from suing or threatening to sue to collect a time-barred debt. As the CFPB explained in finalizing this prohibition,
“a debt collector who sues or threatens to sue a consumer to collect a time-barred debt explicitly or implicitly misrepresents to the consumer that the debt is legally enforceable, and that misrepresentation is material to consumers because it may affect their conduct with regard to the collection of that debt, including whether to pay it.”[vii]
Regulation F’s prohibition on lawsuits and threats of lawsuits on time-barred debt is subject to a strict liability standard; that is, a debt collector who sues or threatens to sue to collect a time-barred debt violates the prohibition “even if the debt collector neither knew nor should have known that a debt was time-barred.”[viii]
Consequently, a debt collector who brings or threatens to bring a state court foreclosure action with respect to a time-barred mortgage debt may violate the FDCPA and Regulation F. This is true even if the debt collector neither knew nor should have known that the debt was time-barred.
Regarding non-foreclosure collection activities, the CFPB has noted a broad range of non-foreclosure debt collection-related activities are covered by the FDCPA, such as communicating with consumers about defaulted mortgages. FDCPA debt collectors undertaking such activity are subject to the other requirements and prohibitions of the statute and Regulation F when collecting debt, regardless of whether that debt is time-barred.
For instance, these requirements and prohibitions include the prohibition on debt collectors:
· Falsely representing the character, amount, or legal status of any debt;[ix]
· Threatening to take any action that cannot legally be taken or that is not intended to be taken;[x] and
· Selling, transferring for consideration, or placing for collection a debt that the debt collector knows or should know has been paid, settled, or discharged in bankruptcy.[xi]
The requirements and prohibitions would also include the requirements that debt collectors:
· Identify themselves as a debt collector in all communications with the consumer (except formal pleadings in connection with a legal action);[xii]
· Provide the consumer with validation information in certain circumstances;[xiii] and
· Respond to consumer disputes adequately before continuing to collect.[xiv]
Because you are our client, I know you service second mortgages. So, a final note. Mortgage servicers (and other entities) selling or collecting on second mortgages are also subject to certain requirements under the Real Estate Settlement Procedures Act (RESPA),[xvi] the Truth in Lending Act,[xvii] and the CFPB’s mortgage servicing regulations.[xviii], [xix]
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
[i] Fair Debt Collection Practices Act (Regulation F); Time-Barred Debt, CFR Part 1006, Advisory Opinion, April 26, 2023, Consumer Financial Protection Bureau.
[ii] This advisory opinion applies to debt collectors as defined in section 803(6) of the FDCPA and implemented in Regulation F, 12 CFR 1006.2(i).
[iii] 15 U.S.C. 1692a(6); 12 CFR 1006.2(i). The statute and regulation also provide that, for purposes of section 808(6) and 12 CFR 1006.22(e), the term debt collector also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. See 12 CFR part 1006.
[iv] 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[v] See, e.g., Cohen v. Rosicki, Rosicki & Assocs., PC, 897 F.3d 75, 83 (2d Cir. 2018).
[vi] See 15 U.S.C. 1692a(5); 12 CFR 1006.2(h).
[vii] 86 FR 5776, 5778 (Jan. 19, 2021).
[viii] Idem at 5777.
[ix] 15 U.S.C. 1692e(2)(a); 12 CFR 1006.18(b)(2).
[x] 15 U.S.C. 1692e(5); 12 CFR 1006.18(c)(1); 15 U.S.C. 1692f(6); 12 CFR 1006.22(e).
[xi] 12 CFR 1006.30(b).
[xii] 15 U.S.C. 1692e(11); 12 CFR 1006.18(e).
[xiii] 15 U.S.C. 1692g(a); 12 CFR 1006.34.
[xiv] 15 U.S.C. 1692g(b); 12 CFR 1006.38(d); 85 FR 76734, 76845-48 (Nov. 30, 2020).
[xv] See FDCPA section 808(6)25 and Regulation F, 12 CFR 1006.22(e).
[xvi] 12 U.S.C. 2601 et seq.
[xvii] 15 U.S.C. 1601 et seq.
[xviii] See, e.g., 12 CFR 1024.33(b) (requiring a transferee and transferor servicer to provide a timely notice of transfer of servicing to the affected borrower); 12 CFR 1024.39 (requiring servicers to make early intervention contacts with delinquent borrowers); and 12 CFR 1024.41 (requiring servicers to follow certain loss mitigation procedural requirements, including certain foreclosure-related protections). Note that small servicers, as defined in 12 CFR 1026.41(e)(4), are exempt from certain of these requirements. See 12 CFR 1024.30(b).
[xix] See 12 CFR 1026.41(a); see also, e.g., 12 CFR 1026.41(e)(4) (exempting small servicers from this requirement) and 12 CFR 1026.41(e)(6) (exempting servicers from periodic statement requirements for certain charged-off loans but only if, among other conditions, the servicer sends a specific notice to the consumer and does not charge additional fees or interest on the account).
